Dichello Distributors, Inc. v. Anheuser-Busch LLC

Decision Date14 September 2021
Docket Number3:20-cv-01003 (MPS)
CourtU.S. District Court — District of Connecticut
PartiesDICHELLO DISTRIBUTORS, INC., Plaintiff, v. ANHEUSER-BUSCH, LLC Defendant

RULING ON MOTION TO DISMISS

Michael P. Shea, U.S.D.J.

Plaintiff Dichello Distributors, Inc. (Dichello), is a family-owned wholesale distributor of beer, including the beer brands manufactured by the Defendant, Anheuser-Busch LLC (AB), a company that owns more than forty major brands and operates nineteen breweries within the United States. Dichello has been the exclusive distributor of AB's beer brands in New Haven, Fairfield, and Middlesex counties for many decades. Dichello has brought this action alleging that certain features of its distributor agreement with AB violate federal and state antitrust law and Connecticut's Unfair Trade Practices Act (“CUTPA”), Conn. Gen. Stat. §§ 42-110a et seq., and that AB is tortiously interfering with Dichello's contract with the employee charged with managing its business. Dichello also seeks a declaration that its distributor agreement with AB is illegal and unenforceable. AB seeks to dismiss Dichello's complaint in its entirety. For the following reasons, I grant in part and deny in part AB's motion to dismiss.

I. FACTUAL BACKGROUND

The following facts are drawn from Dichello's Amended Complaint, ECF No. 17, and are accepted as true for the purposes of this ruling. I also consider the Equity Agreement and the Modified Final Judgment in United States v. Anheuser-Busch InBev SA/NV, No. 16-1483, 2018 WL 6684721 (D.D.C. Oct. 22, 2018), on which the Amended Complaint relies. Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002) (On a Rule 12(b)(6) motion, “the complaint is deemed to include any written instrument attached to it as an exhibit or any statements or documents incorporated in it by reference. Even where a document is not incorporated by reference, the court may nevertheless consider it where the complaint relies heavily upon its terms and effect, which renders the document integral to the complaint.” (internal quotation marks and citations omitted)). I may also take judicial notice of the Modified Final Judgment. Staehr v. Hartford Fin. Servs. Grp., Inc., 547 F.3d 406, 425 (2d Cir. 2008) (On Rule 12(b)(6) motion, “the court may also consider matters of which judicial notice may be taken” (internal quotation marks omitted)); DiBa Fam. Ltd. P'ship v. Ross, No. 13-06384, 2014 WL 5438068, at *2 (S.D.N.Y. Oct. 27, 2014) (Courts may also take judicial notice of matters of public record, including court rulings, when considering motions to dismiss.”).

A. State Regulation of the Beer Industry

Connecticut's Liquor Control Act “dictate[s] how alcohol is distributed from manufacturers to consumers.” (ECF No. 17 ¶ 11). “The beer industry [in Connecticut] ... is divided into three tiers[:] (i) manufacturers; (ii) wholesalers; and (iii) retailers.” (Id. ¶ 10, 12). “Each tier within the ‘Three Tier System' is regulated by state law and any company operating within a given tier must secure a state permit to do so.” (Id. ¶ 12). “Manufacturers in the first tier are generally prohibited from selling directly to retailers, and instead, must sell to wholesalers-who in turn sell to retailers, who then ultimately sell the beer products to the consumer.” (Id. ¶ 13). [A]ny given brand of beer can only be distributed by a single wholesaler within a defined territory.” (Id. ¶ 14).

Companies operating within a tier are prohibited “from owning, operating[, ] or controlling a company in a different tier.” (Id. ¶ 15). Thus, wholesalers are protected and remain independent, which “serves as an important check on the market power of large manufacturers...” (Id. ¶ 19). Wholesaler independence “also facilitates the entry into that market of competing brands of beer, including local ‘craft' beers, all of which inures to the benefit of consumers and the public.” (Id. ¶ 20). Specifically, independent wholesalers are “critical for the marketplace” because they “can invest in relationships with brewers of all sizes to provide them with the opportunity to compete, prosper[, ] and grow in the beer marketplace[, ] and, consequently, can meet consumer demand for “choice, variety, access[, ] and price.” (Id. ¶¶ 20-21).

B. The Parties

AB is a beer manufacturer that “owns and operates 19 breweries in the United States and owns more than 40 major beer brands, including Bud Light, Budweiser, Busch, Michelob, Rolling Rock, Natural Light, Stella Artois, LandShark, Shock Top, Goose Island, Blue Point, and Beck's.” (Id. ¶ 4). AB “uses wholesalers to merchandise, sell[, ] and deliver its beer brands to retailers in Connecticut. The retailers include package stores, grocery stores, restaurants[, ] and bars.” (Id. ¶ 28). [I]ndependent wholesalers distribute the largest volume of AB beer in the United States and AB's beer brands account for a large percentage of the overall business of these independent wholesalers.” (Id. ¶ 29).

Dichello is one such wholesaler. Dichello is a family-owned Connecticut corporation that distributes “numerous beer brands, including beer brands manufactured by [AB], [to retailers] and has been the exclusive distributor of AB beer brands in New Haven, Fairfield and Middlesex counties for many decades.” (Id. ¶¶ 1-2). In addition to distributing AB's brands, Dichello also distributes brands that compete with AB, “including high-end beers that constrain AB's ability to raise prices on its premium and sub-premium brands.” (Id. ¶ 30). The categories of beer brands are explained below.

C. The Beer Market

Beer, typically “made from a malted cereal grain, flavored with hops, and brewed via a fermentation process[, ] has a “taste, alcohol content, image, price, [among other] factors, [that] make it substantially different from other alcoholic beverages.” (Id. ¶¶ 31, 32). As a result, [o]ther alcoholic beverages, such as wine and distilled spirits, are not sufficiently substitutable to beer from the consumers' perspective, and .. relatively few consumers would substantially reduce their beer purchases in the event of a small but significant and non-transitory increase in the price of beer.” (Id. ¶ 33).

“Americans spend nearly $120 [b]illion each year on beer, and [AB, the largest beer brewing company both in the United States and in the world, ] accounts for approximately 40% of all beer sales in the U.S.” (Id. ¶¶ 37, 38). In addition, AB sells a “vast number of brands and those brands account for a large percentage of [each] independent wholesaler's revenues.” (Id. ¶ 39). [T]hus, AB has significant power in the relevant market....” (Id. ¶ 40). The relevant market is “beer sold within the State of Connecticut and the United States[] because, although competition between beer manufacturers exists on a national level, and decisions about brewing, marketing, and branding take place on a national level, competition is regulated by the state via the Connecticut Liquor Control Act. (Id. ¶¶ 34-36).

The beer market is also “segmented, based on price and quality, into three categories: (1) sub-premium, (2) premium, and (3) high-end.” (Id. ¶ 23). Only a small portion of the beer sold by AB comes from the high-end category. (Id. ¶ 24). Therefore, AB seeks to maintain a “price gap” between each category so that consumers are less willing to trade up from one category to the next. (Id. ¶¶ 25-26). The price gaps “minimize competition across segments.” (Id. ¶ 25).

D. Anheuser-Busch's Anticompetitive Conduct

Dichello alleges that AB has used its market power in the relevant market to disadvantage rivals, restrict supply, and reduce competition.” (Id. ¶ 41). Specifically, Dichello asserts that AB ... has used a variety of practices and contractual provisions that impede and restrain the free and independent promotion and distribution of competing beers, generally, and high-end beers, more specifically.” (Id. ¶ 42). Dichello alleges that AB “forced” it to enter into the Amended and Restated Wholesaler Equity Agreement (“Equity Agreement”) on August 25, 2006. (Id. ¶¶ 43-44). These contractual terms (i) limit the wholesaler's ability to promote, supply[, ] and sell beers that compete with AB's beer brands, and (ii) place control of the wholesaler, its operations, and its business, in the hands of AB.” (Id. ¶ 43). Dichello alleges that AB has “forced all of its independent wholesalers to sign identical or nearly identical agreements.” (Id. ¶ 45).

The Equity Agreement requires Dichello to “devote greater effort” to AB products than other products and give priority “over all other products” to the efforts and resources devoted to AB products. (Id. ¶ 44(a), (b)). Further, AB must approve the individual employed by Dichello to manage Dichello's entire business (the ‘Equity Manager') and the successor to the Equity Manager (“Successor Manager”). (Id. ¶ 44(c), (h)). The AB-approved Equity Manager has sole control of Dichello's day-to-day operations and Dichello must convey to the Equity Manager an ownership interest of at least twenty-five percent. (Id. ¶ 44(d), (e)). AB can withdraw its approval of the Equity Manager for good cause. (Id. ¶ 44(f) -(h)). Dichello alleges that the ownership interest for the Equity Manager “gives AB the ability to influence and control the individual at the wholesaler who has day-to-day control over the sale of AB's brands[, ] as well as the brands of its competitors.” (Id. ¶ 52 (emphasis omitted)). Thus, Dichello asserts that AB “effectively assumes control over its wholesalers” through its power over the Equity Manager and ability to terminate its relationship with the wholesaler if the wholesaler does not give the Equity Manager control over “the entirety of [the wholesaler's] business.” (Id. ¶ 53...

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